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HOLDING
INQUIRY
AND
IMPOSING
PENALTIES
BY
Jan 16, 2004 and 55,000 shares on Jan 17, 2004. This is just around the time
the announcements were made by GAL to the BSE. The scrip recorded very
large volumes on 15th, 16th and 19th January 2004. It is observed from the
investigation report that the promoters/ PAC transferred shares before the
misleading announcements to several entities including the Noticee who
thereafter sold the shares through market and off-market transfers. Noticee
thus aided and abetted the promoters and PACs in the manipulation in the
scrip of GAL. The Noticee was alleged to have violated the provisions of
Regulations 4 (1), 4(2) (a), (b), (e) and (g) of the PFUTP Regulations.
6. It is also observed from the investigation report that the Noticee has not
submitted any information sought for through SEBI summons and
reminders during the process of investigation. The Noticee was alleged to
have violated the provisions of Section 11C(2) read with 11C (3) & (5) of the
Act.
7. Further, it is observed from the investigation report that the Noticee was
holding 1,73,617 shares (3.34%) as on 31st December, 2003. On January 16,
2004, 3,50,000 shares (6.73%) were transferred to the Noticee by off market
transfers. Thus, in terms of Regulation 7(1) read with Regulation 7(2) of the
Takeover Regulations and Regulation 13 (1) of the Insider Trading
Regulations, the Noticee was required to make certain disclosures which it is
alleged have not been done. The said acquired shares were subsequently sold
off as per the demat shareholding at NSDL, which shows Noticee's
shareholding in GAL as 1,91,383 shares (3.681%) on January 31, 2004. The
said transactions required disclosure under Regulation 13(3) read with 13(5)
of Insider Trading Regulations, which it is alleged has not been done.
8. The SCN dated 18 March, 2010 was sent to the Noticee and the Noticee
submitted his reply vide his letter dated 05 April, 2010.
9. It has been submitted by the Noticee while denying the allegations that the
matter being five years old, he is unable to recollect any transactions and
further submitted that he is neither related to company nor its promoters.
He had done the transactions in his individual capacity as an investor like
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normal layman do the transactions. He also stated in his reply that there were
no stringent restrictions on off market transactions.
10. An opportunity of personal hearing was granted to the Noticee on 28 July,
2010 vide SEBI letter dated 01 July, 2010. The Noticee authorized his
representative to attend the personal hearing and the same was attended by
the representative of the Noticee on the date. Since Noticee vide his reply
dated 05 April. 2010 had denied all allegations in the aforesaid SCN, it was
informed to the representative of the Noticee to submit the detailed reply
along with the documentary evidence. The representative sought fifteen days
time to submit the reply. However, the Noticee has not filed any further
reply.
11. I find that the Noticee had filed an application for consent dated 14 August,
2010 which was subsequently rejected.
Consideration of Issues, Evidence and Findings
12. I have carefully perused the charges made against the Noticee as mentioned
in the SCN, oral and written submissions and the documents as available on
record. In the instant matter the following issues arise for consideration and
determination:
a) Whether the Noticee has violated provisions of Regulations 4 (1),
4(2) (a), (b), (e) and (g) of the PFUTP Regulations; Regulation 7(1)
read with 7(2) of Takeover Regulations; Regulation 13(1) & (3) read
with 13(5) of Insider Trading Regulations and Section 11C(2) read
with 11C (3) & (5) of the Act;
b) Whether the Noticee is liable for monetary penalty prescribed under
Section 15A(a), A(b) and 15 HA of the SEBI Act for the aforesaid
violation?
c) If, yes what should be the quantum of monetary penalty?
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13. Before proceeding, I would like to refer to the relevant provisions of the
PFUTP Regulations, Takeover Regulations, Insider Trading Regulations and
SEBI Act, which read as under:
PFUTP Regulations
Regulation 4- Prohibition of manipulative, fraudulent and unfair
trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it
involves fraud and may include all or any of the following, namely:(a) indulging in an act which creates false or misleading appearance of trading in the
securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership but intended
to operate only as a device to inflate, depress or cause fluctuations in the price of such
security for wrongful gain or avoidance of loss;
(e) any act or omission amounting to manipulation of the price of a security;
(g) entering into a transaction in securities without intention of performing it or without
intention of change of ownership of such security;
Takeover Regulations
Regulation 7(1) Acquisition of 5 per cent and more shares or voting
rights of a company
"Any acquirer, who acquires shares or voting rights which (taken together with shares or
voting rights, if any, held by him) would entitle him to more than five per cent or ten per
cent or fourteen per cent or fifty four per cent or seventy four per cent shares or voting rights
in a company, in any manner whatsoever, shall disclose at every stage the aggregate of his
shareholding or voting rights in that company to the company and to the stock exchanges
where shares of the target company are listed."
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Regulation 7(2)- The disclosures mentioned in subregulations (1) and (1A) shall be
made within two days of,(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
Insider Trading Regulations
Regulation 13(1) Any person who holds more than 5% shares or voting rights in any
listed company shall disclose to the company in Form A, the number of shares or voting
rights held by such person, on becoming such holder, within 2 working days of:
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
Regulation 13(3) Any person who holds more than 5% shares for voting rights in any
listed company shall disclose to the company in Form C the number of shares or voting
rights held and change in shareholding or voting rights, even if such change results in
shareholding falling below 5%, if there has been change in such holdings from the last
disclosure made under subregulation (1) or under this subregulation; and such change
exceeds 2% of total shareholding or voting rights in the company
Regulation 13(5) The disclosure mentioned in subregulations (3) and (4) shall be
made within 4 working days of:
(a) the receipts of intimation of allotment of shares, or
(b) the acquisition or sale of shares or voting rights, as the case may be.
SEBI ACT
Section 11C(2)- Without prejudice to the provisions of sections 235 to 241 of the
Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing
director, officer and other employee of the company and every intermediary referred to in
section 12 or every person associated with the securities market to preserve and to produce
to the Investigating Authority or any person authorized by it in this behalf, all the books,
registers, other documents and record of, or relating to, the company or, as the case may be,
of or relating to, the intermediary or such person, which are in their custody or power.
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Section 11C(3)- The Investigating Authority may require any intermediary or any
person associated with securities market in any manner to furnish such information to, or
produce such books, or registers, or other documents, or record before him or any person
authorized by it in this behalf as it may consider necessary if the furnishing of such
information or the production of such books, or registers, or other documents, or record is
relevant or necessary for the purposes of its investigation.
Section 11C(5)- Any person, directed to make an investigation under sub-section (1),
may examine on oath, any manager, managing director, officer and other employee of any
intermediary or any person associated with securities market in any manner, in relation to
the affairs of his business and may administer an oath accordingly and for that purpose
may require any of those persons to appear before it personally.
Alleged Violations of PFUTP Regulations
14. I find from the documents available on record that prior to the investigation
period, the scrip was traded irregularly and from August 01, 2003 to October
06, 2003, the scrip was traded on only three days with one trade on each day
at Rs. 8.05/-. The scrip was traded actively from October 2003 and a major
volume was observed on January 16, 2004 which was for 804675 shares.
Thereafter, the price and the volume started declining and the scrip closed at
Rs. 4.63/- in February 2004, Rs. 1.62/- in March 2004 and was last traded on
BSE on December 20, 2004 at Rs. 1.25/15. During the investigation period, the scrip of GAL got traded on 80 days for
81,16,559 shares. The price of the scrip increased from opening price of Rs.
9.5 on October 6, 2003 to closing high price of Rs. 26.45 on November 11,
2003 accompanied by high volumes. The results for quarter ended
September 2003 were declared on November 07, 2003. Thereafter from
opening price of Rs. 27.75 on November 12, 2003 the price of the scrip fell
and reduced to Rs. 10.12 on December 18, 2003 amidst comparatively low
volumes. The results for quarter ended December 2003 were declared on
January 14, 2004. During this period the scrip recorded very large volumes
especially on January 15, 2004, January 16, 2004 and January 19, 2004. The
price hit the lower circuit of 5% thereafter and closed at Rs. 11.10 on January
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28, 2004. The volumes in the scrip were as low as 143 shares on October 06,
2003 and was as high as 8,04,675 shares on January 16, 2004.
16. I find that following corporate announcements were made by GAL during
the investigation period:
Date
November
2003
Impact
on
price/volume
Next 7 days
price went up
from Rs 21.55
to Rs 26.45.
Marginal rise in
price.
Price
fell,
accompanied by
huge volumes.
17. GAL declared the results for quarter ended September 2003 on November
7, 2003 and following observations were made:a. The Sales of GAL were Rs.2351.68 lakhs and net profit of Rs.237.19
lakhs as against total sales of Rs.15 lakhs and net loss of Rs.0.44 lakhs for
the quarter ended September 30, 2002.
b. In the notes below the results of September 2003 the company
announced that by an agreement dated 25th October, 2003 it acquired
w.e.f. 1st July, 2003 the business and undertaking of Poonam Industries
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22. I observe that it is unlikely that the normal investor would receive such a
substantial quantity of illiquid scrip and sell the major portion of the shares
so received immediately after receiving the same and that too around the
time when the announcements were made by the GAL to the BSE. I find on
the basis of available records that the reply of the Noticee is untenable and
the Noticee has aided and abetted the promoters and PACs in the
manipulation in the scrip of GAL.
23. Regulation 4 (1) of SEBI PFUTP Regulations states that without prejudice to
the provisions of regulation 3, no person shall indulge in a fraudulent or an
unfair trade practice in securities.
24. Further, Regulation 4 (2) (a), (d), (e), (f), (k) & (r) of SEBI PFUTP
Regulations states that dealing in securities shall be deemed to be a
fraudulent or an unfair trade practice if it involves fraud and may include all
or any of the following, namely:
(a) indulging in an act which creates false or misleading appearance of
trading in the securities market;
(b) dealing in a security not intended to effect transfer of beneficial
ownership but intended to operate only as a device to inflate, depress or
cause fluctuations in the price of such security for wrongful gain or
avoidance of loss;
(e) any act or omission amounting to manipulation of the price of a
security;
(g) entering into a transaction in securities without intention of
performing it or without intention of change of ownership of such
security;
25. The facts of the case as stated above, highlight the Noticee involvement in
aiding and abetting the promoters and PACs in the manipulation in the scrip
of GAL. The Noticee received 3,50,000 shares from Right Finstock Pvt.
Limited on Jan 16, 2004 and sold 1,50,000 shares on Jan 16, 2004 and 55,000
shares on Jan 17, 2004. This is just around the time the announcements were
made by GAL to the BSE. The scrip recorded very large volumes on 15th,
16th and 19th January 2004. The promoters/ PACs transferred shares before
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made thereunder,
(a) to furnish any document, return or report to the Board, fails to furnish the same, he
shall be liable to 52[a penalty 53[which shall not be less than one lakh rupees but which
may extend to one lakh rupees for each day during which such failure continues subject to a
maximum of one crore rupees]];
(b) to file any return or furnish any information, books or other documents within the time
specified therefor in the regulations, fails to file return or furnish the same within the time
specified therefor in the regulations, fails to file return or furnish the same within the time
specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for
each day during which such failure continues or one crore rupees, whichever is less;
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32. While determining the quantum of penalty under Sections 15A(a), 15A(b)
and 15HA, it is important to consider the factors stipulated in Section 15J of
the Act, which read as under:Factors to be taken into account by the adjudicating officer
15 J. While adjudging quantum of penalty under section 15-I, the adjudicating officer
shall have due regard to the following factors, namely:(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the
default;
(c) the repetitive nature of the default.
33. It is difficult, in cases of such nature, to quantify exactly the disproportionate
gains of unfair advantage enjoyed by an entity and the consequent losses
suffered by the investors. I have noted that the investigation report also does
not dwell on the extent of specific gains made by the clients or the brokers.
Suffice to state that keeping in mind the practice indulged in by the Noticee,
gains per se were made by the Noticee. People who indulge in manipulative,
fraudulent and deceptive transaction, or abet the carrying out of such
transaction which are fraudulent and deceptive should be suitably penalized
for the said acts of omissions and commissions.
Order
34. In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under Section 15-I (2) of
the SEBI Act, 1992, I hereby impose a monetary penalty of Rs. 20,00,000/(Twenty Lakhs only) on the Noticee under Section 15HA of the Act; Rs.
20,00,000/- (Twenty Lakhs only) on the Noticee under Section 15A(b) of
the Act and Rs. 1,00,00,000/- (One Crore only) on the Noticee under
Section 15A(a) of the Act. Thus, total penalty of Rs. 1,40,00,000/- (Rupees
One Crore Forty Lakhs Only) is imposed on the Noticee under Section
15HA, 15A(a) & 15A(b) of the Act, which will commensurate with the
violations committed by the Noticee.
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35. The penalty shall be paid by way of demand draft drawn in favour of SEBI
Penalties Remittable to Government of India payable at Mumbai within
45 days of receipt of this order. The said demand draft shall be forwarded to
Division Chief, Investigation Department (IVD-7), Securities and Exchange
Board of India, Plot No. C4-A, G Block, Bandra Kurla Complex, Bandra
(E), Mumbai 400 051.
36. In terms of the provisions of Rule 6 of the Adjudicating Rules the copies of
this order is sent to the Noticee and also to Securities and Exchange Board
of India.
Date: 09-February-2015
Place: Mumbai
ASHA SHETTY
ADJUDICATING OFFICER
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